Despite many predictions for lower inflation, prices for March increased 3.5%. Most economists forecasted 3.2%. So the good news is that much progress has been made since the recent inflation high of 9% almost two years ago.
The bad news is that inflation has risen three months in a row, and it is still above the federal government's target of 2%.
How does this higher than expected level inflation affect retirement portfolios? Well, the answer depends on what investments make up their retirement portfolios. Most retirement portfolios are made up of some combination of stocks, bonds and cash. Inflation can have a negative impact on all three. Higher prices generally mean less consumer spending, which reduces corporate revenues. Higher prices also mean increased costs for labor and materials for corporations. Taken together, it reduces corporate profits, which in turn usually reduces stock prices.
Inflation works against bond investments, too. A bonds return is fixed. In periods of inflation, the return on bonds has less purchasing power when it's adjusted for inflation. Inflation has the same impact on cash as it does on bonds. Say you have $1,000 saved in your retirement account. If inflation is 3.5% a year after a year, the purchasing power of your cash will only be worth $965.
So how can a consumer protect their retirement portfolio so that their distributions purchasing power is protected against the possibility of inflation? Well, one strategies to diversify a retirement portfolio to include an asset that generally increases in value during periods of inflation. Gold is one such asset. While inflation is not the only factor that can drive gold prices up, higher gold prices generally correlate with higher inflation. Other factors affecting gold prices include economic uncertainty, global instability, and increased demand for a limited supply of gold.
No one knows what's going to happen in the future when a consumer decides to retire and start taking distributions from their retirement portfolio. It could be a time of high inflation or low inflation. Peace or war. Prosperity or economic turmoil. I choose to be prepared by having a retirement portfolio that is diversified with gold. One of the easiest ways to diversify your retirement portfolio with gold is with a gold IRA. Mine is from U.S. Money Reserve.
